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IMF Loan To Pakistan

Why is it in News?

  • Pakistan has reached an agreement with the IMF to receive $6 billion over the next three years to meet its foreign debt obligations.
  • The loan would act as the 13th bailout since the late 1980s from the IMF, which is going through a BOP crisis prompted by high fiscal and CAD and diminishing foreign exchange reserves.
  • Pakistan has agreed to some of the structural changes as part of the agreement as wanted by the IMF like lining up expenditure with resources, improving the functioning of loss-making state-owned enterprises, curtail the subsidies etc.
  • The structural reforms mandated by the package could result in increase in prices of goods and utilities like gas and electricity, more increase in fuel prices and further devaluation of rupee.

About Lending by the IMF:

  • IMF loans are meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth.
  • The IMF is not a development bank i.e. unlike the World Bank, it does not finance projects.
  • As a condition for lending, the IMF and the government agree on a program of policies targeted at accomplishing specific, quantified objectives in support of the overall objectives of the authorities' economic program. For example, the nation may obligate to fiscal or foreign exchange reserve targets.
  • In 1991, India was granted loan by IMF after it promised to launch several structural reforms in the coming years. The recent economic reforms of 1990s in India are said to have been introduced at the instance of the IMF-World Bank.

Source: TH